Summary1. Diatoms are recognised as indicators in temperate streams, but only recently have assessments begun of their value in indicating stream quality in the tropics and sub‐tropics. Here, we extend previous studies by assessing stream diatom assemblages in relation to water quality and habitat character in the Kathmandu Valley, and in the Middle Hills of Nepal and northern India. We also assessed whether the U.K. Trophic Diatom Index (TDI) was sufficiently portable to reveal pollution in Himalayan rivers. In the more urbanised and highly agricultural Kathmandu Valley, we compared diatom response to water quality classes indicated by a local invertebrate index, the Nepalese Biotic Score (NEPBIOS).2. Thirty and 53 streams in the Kathmandu Valley (2000) and Middle Hills (1994–96), respectively, were sampled in October and November during stable flows following the monsoon. Diatoms were collected in riffles, water samples taken for chemical analysis, and habitat character of the stream channel, bank and catchment assessed using river habitat surveys. In the Kathmandu Valley, macroinvertebrates were collected by kick‐sampling.3. In total, 113 diatom taxa were found in the Kathmandu Valley streams and 106 in the Middle Hills. Of 168 taxa recorded, 62 occurred only in the Kathmandu Valley, 56 only in the Middle Hills and 50 were common to both areas. Most taxa found only in the Kathmandu Valley belonged to the genus Navicula while most taxa confined to the Middle Hills were Achnanthes, Fragilaria and Gomphonema.4. In the Kathmandu Valley, richness and diversity increased significantly with K, Cl, SO4 and NO3, but declined significantly with Al, Fe, surfactants and phenols. Richness here also varied with habitat structure, being lowest in fast flowing, shaded streams with coarse substrata in forested catchments. In all streams combined, richness increased significantly with Si, Na and PO4, but declined significantly with increasing pH, Ca and Mg.5. Diatom assemblage composition in the Kathmandu Valley strongly reflected water chemistry as revealed by cations (K, Na, Mg, Ca), anions (Cl, SO4), nutrients (NO3, PO4, Si), and also substratum composition, flow character and catchment land use. The commonest taxa in base‐poor forested catchments were Achnanthes siamlinearis, A. subhudsonis, A. undata and an unidentified Gomphonema species; Cocconeis placentula and Navicula minima in agricultural catchments; and Mayamaea atomus var. alcimonica, M. atomus var. permitis, and Nitzschia palea at polluted sites near settlements. Diatom assemblages in none‐agricultural catchments of the Kathmandu Valley and Middle Hills were similar, but they contrasted strongly between urban or agricultural catchments of the Kathmandu Valley and the less intensively farmed catchments of the Middle Hills.6. In keeping with variations in assemblage composition, most streams in the Kathmandu Valley had higher TDI values (33–87, median = 64) and more pollution tolerant taxa (0–78%, median = 16) than streams in the Middle Hills (25–82, median 45, 0–26%, median = 2). TDI values correlated significantly with measured PO4, Si, and Na concentrations in the Kathmandu Valley, and with Si and Na concentrations in the Middle Hills. There was some consistency between water quality classes revealed by NEPBIOS and diatoms, but also some contrast. Water quality class I–II sites had lower TDI values and were less species rich than water quality II sites, however, there were no significant differences in detrended correspondence analysis (DCA) assemblage scores and relative abundances of pollution tolerant taxa between NEPBIOS classes.7. While diatoms in the Middle Hills indicate unpolluted or only mildly enriched conditions, they reveal pronounced eutrophication and organic pollution in the densely populated Kathmandu Valley. In addition, diatoms appear to respond to altered habitats in rural agricultural and urban areas. As demands on water resources in this region are likely to increase, we advocate the continued development of diatoms as indicators using methods based on what appear to be consistent responses in the TDI between Europe and the Himalaya.